China is India’s Largest Trading Partner:

China and India have been trading goods for centuries including along the historical “Silk Route”. According to Government of India statistics, China - India bilateral trade reached an all time high in 2018 to reach US$85 billion. The two countries have set a target of US$100 billion in bilateral trade.

China is India’s largest trading partner with the balance of trade in favor of China. India trades more with China than it does with the US and the UAE (the next two largest trading partners).

Recent geopolitical events have led to China seeking to expand its trade relations with India. China - India trade has traditionally been in the pharmaceuticals, minerals, textiles, chemicals and electronics sectors.

China– India Trade is Growing Rapidly and the Technology Sector is Leading the Growth:

However, the technology sector is now leading the growth in China-India trade.

Chinese technology companies and venture capital funds invested US$5 billion in the Indian technology ecosystem in 2018 including in start up technology companies, surpassing investment from the US and Japan.

KWM represents many of the top Chinese investors in India including Alibaba, Shunwei Capital, Fosun, Tencent and Xiaomi. These investors have made investments in sectors such as consumer, mobile, social media, health care and fintech.

In addition, other leading Chinese technology venture capital funds such as Qiming Ventures, Morningside Ventures, CDH Investments, 01VC and Orchid Asia Group have been actively scouting the Indian market for investments . 

Chinese venture capital funds have begun speaking at technology conferences in India and increasing their visibility and profile.

Outside of Mainland China and venture capital, Hong Kong based private equity funds such as Hillhouse Capital, Barings Private Equity and PAG are also active investors in India, with PAG announcing that it is opening an office in Mumbai . PAG stated that “PAG has been actively seeking major investment opportunities in India. We believe in the potential of the Indian market. We look forward to increasing our investment activities in India.”

Key Differences between the Chinese and Indian Technology Sectors: a Chinese Walled Garden versus an Indian Modified Open Door

China and India have adopted different strategies for the growth of their respective technology sectors. China has adopted a “walled garden” policy whereby certain sectors are reserved for Chinese companies. The effect has been that leading US technology companies have generally had a limited presence in China. In addition, foreign investors in the Chinese technology sector have had to utilize complex variable interest entities (VIE) investment structures.

In contrast, India has utilized a modified open door policy where US companies have had a deep presence in the Indian technology sector, initially using India as an outsourcing center for technology development but later capitalizing on the growth of the Indian market itself. Only a few sectors such as retail and recently, e-commerce in retail, have required foreign investor approvals and/or complex structuring.

Can India Replicate the China Growth Story in the Technology Sector:

A common investor thesis is that India is 10-20 years behind China but that India will grow rapidly. India will be the world’s fastest growing economy for the rest of this decade and will be the world’s fourth largest economy in the 2020s, behind only the US, China and Japan .

Having seen China grow quickly in the last twenty years, Chinese investors want to be a part of the India growth story including in the technology sector. According to Cisco, India has reached an inflection point in technology adoption with social, mobile, cloud and analytics driving digital disruption in the country .

India currently has 20 technology “unicorns”, compared to 127 in China and 77 in the US . India has the potential to grow 100 unicorns or more over the next five years.

With such potential for growth, Chinese investors want to be active participants in the Indian technology ecosystem.